Economics

Godfather IV: Introducing Libor Corleone

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One question I've been pondering over the past half-year of financial crisis is this: Why wouldn't cash-rich individuals and organizations take this opportunity to get into the lending business? After all, there hasn't been a better time in recent history to pick and choose your banking customers; also, you (probably) wouldn't have to adhere to any bailout-triggered government restrictions/requirements, making you that much more competitive within the field.

Well, you'll never guess who's seizing the market opportunity in Italy….

[Thanks to Scott Ross for the tip.]

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  1. “Look into our new super-prime mortgages!”

  2. One question I’ve been pondering over the past half-year of financial crisis is this: Why wouldn’t cash-rich individuals and organizations take this opportunity to get into the lending business?

    Because there is not “credit crisis”. Prime borrowers have no trouble getting loans. The problem is, there’s just too much debt out there. The fact that people/institutions who should never have been financed in the first place, can’t go deeper in the hole, is simply not something we should be trying to correct.

  3. Excellent. You know, if banks started employing hitmen, goons, and skullcrackers, perhaps people would be more inclined to either not take on debt they can’t handle or actually paying it off.

    Good to see there’s someplaces in this world that stupidity is still punished.

  4. Why wouldn’t cash-rich individuals and organizations take this opportunity to get into the lending business?

    Mafia jokes aside, I have no debt, low expenses and a goodish chunk of money in savings, but there is no way in HELL I’d consider any business venture where I have to make do with my own money and resources while my competitors have billions of dollars in government subsidies underwriting them.

  5. Warren hit’s the nail on the head

    If you can show you have a good chance of paying back a loan then there are plenty of banks and others who will lend to you. On the other hand there are also plenty of people and businesses who are underwater, they owe more then they are worth and this is more then just real estate. The biggest examples of those not getting loans is businesses like AIG, Citibank, Goldman Sachs etc who went deep into debt to maximize their expansion and profit making and now can’t get loans other then those being forced out of the taxpayers

  6. Based on personal (and friends’) experience, not only can people with reasonably good credit get loans, they can get them at dirt cheap rates.

  7. I think Warren is right. The problem is that no one is borrowing. People either have too much debt or they are too worried about the economy or both. Banks are dying to lend money. That is how they make money. They just can’t find takers. Of course with our nitwit in chief running around screaming the sky is falling every day in order to get what he wants politically and basically declaring war on anyone making over 250K a year, would you want to borrow money to start or expand a business right now?

  8. I think robc and John are correct. I just got a dirt cheap re-fi on my residence. There are lenders begging to make loans – to folks with good credit.

    On the other hand, I was considering selling a rental home I own and holding the mortgage myself. But now my state is talking about a “six-month moratorium” on foreclosures. No way I want to wander into that potential mess. So I won’t be getting into the lending game.

  9. What’s the vig on these loans? I know this guy who told me he knows the fix is in at the track for the third race this Sunday. I’ll take a loan, hit the trifecta, and make a fortune! I can’t lose!

  10. Episiarch, a recent H&R said the Mexican drug cartels are taking $25 billion out of the U.S. annually. Surely they can’t be spending it all on guns. Maybe you could apply to them?

    The fact that people/institutions who should never have been financed in the first place, can’t go deeper in the hole, is simply not something we should be trying to correct.

    You mean there isn’t a “right to loans at minimal interest so you can pay union workers” out there in the penumbra somewhere?

    And this is something we should be trying to correct. Just not by feeding the habit. A lot of these loans were made because the U.S. government guaranteed (essentially cosigned) them. That needs to come to a screeching halt.

  11. Episiarch, a recent H&R said the Mexican drug cartels are taking $25 billion out of the U.S. annually. Surely they can’t be spending it all on guns.

    No, but putting most of the cops and politicians in Mexico on the payroll can’t be cheap.

  12. Matt, the FDIC is currently not accepting new banks. There’s over 100 applications in their hands that they are sitting on. Wish I was making it up.

  13. Warren has it mostly right. I am in the banking industry on the underwriting side (boo hiss) and even for the top notch customers, we are a little tighter/tougher. Pricing & spreads are really big issue right now as the banking industry has done a horrible job for at least a decade of getting paid for their level of risk. We are trying to correct it. We will also demand more/better collateral for the deals we want to do.

    But those are the only deals we are doing. We are not going to strech at all like we did from say ’96 to as late as early ’07.

  14. Isn’t state meddling how the Mafia got started?

  15. Because there is not “credit crisis”. Prime borrowers have no trouble getting loans. The problem is, there’s just too much debt out there. The fact that people/institutions who should never have been financed in the first place, can’t go deeper in the hole, is simply not something we should be trying to correct.

    Another reason why letting the recession run it’s natural course is the correct thing to do. Let people tighten their budgets and pay down debt so they become credit-worthy instead of “Spend money to support the economy!!”

  16. Even if you aren’t subject to bailout restrictions, you’re still subject to the same federal and state lending laws that created this problem in the first place.

  17. There was an article recently in the AJC about how federal regulators have halted approval of new banks:
    http://www.ajc.com/business/content/business/stories/2009/03/01/banks_georgia.html

    Sample quote:
    “Some bankers say it has become so difficult to win approval from the Federal Deposit Insurance Corp. that a de facto moratorium is in place on new bank formation. For all practical purposes, banks cannot operate without FDIC insurance.”

  18. “This thing we have” has always been the sub-prime lender of last resort, before all the banks got into the act too. But banks didn’t understand that sub-prime lenders need very persuasive collection agents.

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